The shadow MPC’s decision to keep rates and QE unchanged comes ahead of the Bank of England’s announcement scheduled for midday today.
The Bank will have been cheered by the recent upward revision to fourth quarter GDP to 0.4 per cent and also by the pick up in its preferred measure of the broad money supply despite the ending of QE. Both City A.M.’s Allister Heath and Henderson’s Simon Ward believe that interest rates should be hiked by 25 basis points this month given that the economy is growing again and the Bank needs to assert its inflation-fighting credibility.
However, a number of the members remain extremely dovish with the Institute of Directors’ Graeme Leach saying he would be happy with an extra £25bn of QE in order to boost money supply growth. The doves cite the fragility of the economic recovery and the need to keep monetary policy supportive if not expansionary.
With an election next month, most analysts predict that the Bank will keep policy unchanged in order not to rock the boat in an uncertain market. Rather, analysts expect a move, if at all, to happen in May, which is an inflation report month so the MPC will benefit from a fresh set of inflation and growth forecasts.
The Bank said on Tuesday that it would be changing the date of the May meeting so as to not clash with the general election.